Google pays $1bn for stake in AOL

Google late last night finally announced that it had bought a 5pc stake in Time Warner's internet portal AOL for $1billion, ending months of speculation.

The two companies talked of "creating a global advertising partnership" in a statement rushed out after the Time Warner board approved the deal.

Under the agreement, which values AOL at $20billion, AOL and Google will collaborate on a new online video service using Time Warner's content and integrate their instant messaging offerings.

The agreement is also likely to see Google push into display advertising for the first time, something that is likely to boost revenues but could also alienate users who appreciate Google's minimalist look.

The deal expands a three-year partnership between the two companies and comes after four months of negotiations that led to a tentative deal being struck last week.

Time Warner chairman Dick Parsons said: "This agreement is key to fulfilling our commitment to realise the potential of AOL's very large online audience.

A critical piece of this strategic alliance will be our content, which we will be making more accessible to Google users."

Google chief executive Eric Schmidt said the agreement "leverages technologies from both companies to connect Google users worldwide to a wealth of new content.

The search giant beat off competition from Microsoft, which only two weeks ago was thought to be close to agreement with AOL.

Analysts called the deal a major defensive win for Google, depriving Microsoft of a major customer that could have kick-started its push to compete with Google in the fast growing online advertising services market.